February 22, 2013

Wisconsin State Journal: Experts see no big gain for economy, taxpayers in Scott Walker’s budget proposal

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(Original Post)

DEE J. HALL | Wisconsin State Journal | [email protected] | 608-252-6132

Gov. Scott Walker’s proposed income tax cut is likely too small to help individual taxpayers or the Wisconsin economy but could be large enough to harm the state’s future fiscal soundness, according to experts reacting Thursday to the governor’s 2013-15 budget.

However, some said the cut would send a positive signal, echoing the governor’s budget address on Wednesday.

“The message sent by this cut to businesses and workers will hopefully help keep our best and brightest here, which can only improve the state’s economy and overall quality of life,” said Mike Ford, research director of the free-market Wisconsin Policy Research Institute.

The two-year spending plan calls for a state income tax cut averaging $106 for a family of four earning $80,000 a year. That’s about $2 per week.

For low-income taxpayers, the cut is even more miserly: An estimated $2 a year for those earning less than $21,000, according to an analysis by the Institute on Taxation and Economic Policy done for the Wisconsin Budget Project. That analysis also showed the wealthiest taxpayers, those earning $374,000 or more, would see a cut of $285.

“The governor has argued that by putting more money in people’s hands, the tax cuts will spur economic growth in Wisconsin,” said Andrew Reschovsky, a UW-Madison professor of public affairs and applied economics. “There is no evidence that the tax cut will do much to encourage growth and job creation.”

Mark Schug, a UW-Milwaukee professor emeritus who now consults in the area of economic education, agreed such a cut is not likely to be an economic boost.

“I do tend to think that the income tax reduction is not sufficient,” Schug said.

Walker spokesman Cullen Werwie said the proposed tax cut is modest because “we had to work within the constraints of our budget to get tax relief to middle-class families.”

Wisconsin’s state income tax rate ranks among the top 10 for households earning between $40,000 and $150,000 a year, according to a study cited by state budget officials Wednesday. Walker’s proposal for a roughly 2 to 3 percent state income tax cut would return a projected $343 million to state income taxpayers over the next two years.

The Republican governor has said he would use the state surplus, expected to be $442.7 million by June 30, to pay for the cuts. But beginning in 2016, Walker’s budget projects negative balances.

Reschovsky warned that while returning the state’s surplus to taxpayers may sound like a good idea, it could leave the state vulnerable if the national economy takes another downturn.

“The budget surplus … is a one-time event, attributable to last year’s budget lapse, and to somewhat more robust revenue growth than initially forecast,” Reschovsky said. “Reducing income tax rates provides a permanent reduction in the flow of tax revenue in Wisconsin. The result will be the expansion of the state’s structural deficit.”

Todd Berry, executive director of the Wisconsin Taxpayers’ Alliance, said he is puzzled by Walker’s apparent about-face on the deficit, which the governor repeatedly cited in the last budget cycle as justification for large unpopular cuts to education and increases in the amount public employees must contribute to their pension and health plans.

“They (Republicans) spent a lot of political capital — think the protests at the Capitol — but they improved these (budget) numbers,” Berry said. “It’s just ironic that they seem so quick to give up all these improved measures of fiscal health. … It seems somewhat short-sighted.”

“The return of the structural deficit is concerning,” Ford agreed. “The hope is that a continued economic recovery will ensure its return is only temporary.”

And that, said Berry, is largely out of Walker’s hands.

“Generally speaking, it’s going to be the national economy, global economics and global events that are going to affect state economies,” he said. “It’s very hard to do anything very substantive on the state level because there are much larger forces at work.”